London Forex Report: IMF Cut Growth Forecast, Risk Sentiment Slides

London Forex Report: IMF Cut Growth Forecast, Risk Sentiment Slides

London Forex Report:  Acknowledging a less sanguine growth backdrop, IMF has cut this year’s world growth forecast by 0.2ppt to 3.4% but maintained its 2017 growth forecast at 3.6%. Downside risks from emerging markets were the key catalysts driving down IMF forecasts. Key risks highlighted namely the spillover from slowdown in China, implications from a stronger USD and Fed policy normalization, FX deprecation in EMs, and escalation in geopolitical tensions, although not new, still poses clear and present danger to EMs and the world economy. This affirms our view that global policy will need to stay very accommodative to support growth. BOE Governor Carney has also said the time is not ripe for a rate hike given softer global backdrop and slowing growth in the UK economy. USD ended lower as risk appetite improved following talks regarding possibly stimulus from China. The USD Index lost all early gains by US mid-day but recovered slightly to close 0.04% higher at 98.99.

EURUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: EUR hits new session high at 1.0938 while the flow in risk appetite dictated movements in major currencies, the focus remained on the fortunes of the commodity and equity markets. The European Central Bank plans to tell euro zone banks how to better manage bad loans, banking officials said on Tuesday, in an effort to resolve an issue that is curbing the region’s economic recovery.

Technical: While offers at 1.0950 contain upside reactions expect rotation to retest bids at 1.08, a breach of 1.0990 trend resistance opens a broader 1.1240 symmetry corrective objective.

Interbank Flows: Bids 1.08 stops below. Offers 1.0950 Stops above.
Retail Sentiment: Bearish
Trading Take-away: Sidelines

eu201

GBPUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: GBP opens this morning much lower at 1.4150 on the back of dovish speech by BoE Governor Mark Carney who pushed back the timetable for a rate hike. A series of better-than-expected data including CPI figures was not enough to support the sterling. Carney added that he would need to see significant improvement in wage growth, core inflation and economic growth before considering a rate hike, pushing rate hike expectations until the second half of 2017.

Technical:  While 1.42590 caps upside reactions expect a grind lower to test bids at 1.41. Only over 1.45 eases immediate downside pressure.

Interbank Flows: Bids 1.41 stops below. Offers 1.43 stops above
Retail Sentiment: Bullish
Trading Take-away: Short target 1.35

gu201

USDJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: Japan January Tankan manufacturing index +6, non-manufacturing +27, Dec +9 and +18, April manufacturing index eyed at +6, non-manufacturing +23, mood down amidst China concerns. Nikkei enters bear market territory crashing 21% since August 2015 highs weighs on USDJPY.

Technical:  While 117.30 caps upside attempts expect a test of 116 bids. Only above 119 eases immediate downside pressure.

Interbank Flows: Bids 116 stops below. Offers 117.50 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines

uj201

EURJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: EURJPY has been in tight ranges since Thursday’s failure to extend through 128.75-80. Breaking lower over night as risk sentiment shifts south and the Nikkei enters a technical bear market

Technical:  While 128.30 caps upside reactions, expect a grind lower to retest lows at 126.70’s a failure here opens a test of bids at 126. Only over 129 eases immediate downside pressure.

Interbank Flows: Bids 126.50 stops below. Offers 128.50 stops above
Retail Sentiment: Bullish to neutral
Trading Take-away: Sidelines

ey201

AUDUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: The Chinese Q4 GDP data came in at 6.8% YoY against prior data of 6.9%. Initially this news saw AUDUSD losing strength before bouncing back through 0.69 as risk sentiment improved from stabilization in Yuan devaluations and Chinese stock markets, however the reversal in risk sentiment has weighed on AUD overnight. Without much tier-1 domestic data this week, markets will look to today’s US data, including CPI figures, for hints so as to determine the future path of Fed rate hikes.

Technical: While .6950 caps intraday upside expect a grind lower to retest .6830’s lows en-route to .6750. Only a breach of .7050 eases immediate downside pressure.

Interbank Flows: Bids .6800 stops below. Offers .6950 stops above
Retail Sentiment: Bullish
Trading Take-away: Short 6950 stops to entry to target .6750 initially

au201

USDCAD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Fundamental: CAD trimmed earlier gains against USD as crude oil prices remained fragile and the uncertainty on the Bank of Canada’s rate decision today. Brent crude rebounded from 12-year lows after statistics showed record demand in China, but a warning by the International Energy Agency that the market could “drown in oversupply” sent US crude down to its lowest since 2003.

Technical: Bulls have the ball while 1.4485 supports, expect a grind higher to test 1.47. Only below 1.44 eases immediate bullish pressure

Interbank Flows: Bids 1.4450 stops below. Offers 1.4650 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines

uc201

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